Unleashing value in private equity through ESG

Hidden opportunities for private equity

ESG: Ontdek de verborgen kansen voor private equity
  • Publication
  • 08 Sep 2023

PwC's Global Private Equity Responsible Investment Survey 2023 (PERIS) again underlines that incorporating ESG factors into investment decisions can create added value for private equity firms. 'The industry needs to pay even more attention to this and embrace ESG as a catalyst for positive change and value creation', say PwC experts Leonie Schreve, responsible for ESG in M&A practice and Cornelis Smaal, responsible for PwC's services to private equity clients.

Global Private Equity Responsible Investment Survey 2023

PwC's latest research reveals that PE firms are increasingly recognising the value of incorporating environmental, social and governance (ESG) factors into their investment strategies and decision-making processes. Compared to ten years ago, the vision of PE companies has clearly evolved. They are no longer solely focused on risk management, but have also recognised the opportunities to integrate and quantify ESG throughout the deal lifecycle. This includes financial ups and downs, ESG taxes and subsidies, strategy, resilience and operational efficiency.​

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Key findings worldwide

Key findings​

PERIS provides insight into how 166 private equity firms in 22 countries view ESG. Five key findings from the recent report are:

  • Value creation recognition
    Private equity firms are increasingly recognising the value of ESG, with 70 percent considering it one of the top three drivers.
  • Integrated ESG practices
    ESG factors are now - and increasingly - woven into the deal lifecycle. And in doing so, they influence sourcing, due diligence, post-acquisition implementation, and deal terms.
  • Qualitative benefits
    Although direct financial results are difficult to measure, qualitative benefits such as brand positioning, risk mitigation and market differentiation are widely recognised.
  • Valuation challenges
    Assigning financial value to ESG considerations remains a challenge with up to a third of companies incorporating ESG factors into valuations.
  • Search for opportunities
    Leading companies are actively seeking ESG-related opportunities, incorporating them into their exit strategy, leveraging green incentives and attracting green finance.​

Private equity and ESG in the Netherlands

'The Dutch trends are not fundamentally different from the global trends', Cornelis Smaal reflects on the research. 'You can see that ESG is being looked at explicitly in the Netherlands, while at the same time the investors (the limited partners) are often active worldwide and therefore invest widely, across national borders.

However, we are still missing opportunities; ESG and, by extension, reporting on it (such as SFDR and CSRD) is often still seen as compliance and not as an opportunity to make a substantial contribution. The zeitgeist is different from ten or even five years ago. ESG, thinking in terms of value (also financially) and 'doing the right thing' require a different approach.'

'As an organization you should indeed not look at sustainability because it is or will become mandatory, but as a must to run your business even better,' adds Leonie Schreve. 'Whereas a compliance approach is mainly based on ticking the box, we look much more at market dynamics and opportunities. We show our clients that sustainability offers financial value to differentiate yourself from competitors, open up new markets and attract financing more easily. This requires a 360-degree approach to properly understand the company and the market and to help it understand the opportunities for value creation.'

Within private equity funds there are still plenty of opportunities to manage even better on value. 'With the right mindset, tooling and commitment from all those involved, you can capitalise on those opportunities', concludes Smaal. 'And you will have to, because if you are not already thinking more broadly about ESG and value - in your current fund and investments - you will not be sufficiently involved in subsequent fundraising events. Times have really changed.'

Global Private Equity Responsible Investment Survey 2023

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Leonie Schreve

Leonie Schreve

Partner, PwC Netherlands

Tel: +31 (0)63 063 48 15

Cornelis Smaal

Cornelis Smaal

PE Industry Leader, PwC Netherlands

Tel: +31 (0)65 573 13 17